For a change, Fox Business recently reported about an interesting legal case under the title Dancers sue strip club claim it ‘forced a socialist economic system’ by forcing them to share tips (April 10, 2024). Not that this case is terribly relevant for us, nevertheless it is still interesting as an experiment as to how far we do or don’t lean to the left. Personally, if I were a waiter or a dancer (not very likely) I would strongly oppose sharing my tips with other employees in a tipping pool. But nowadays, such pools are rather common and they are widely accepted by the employees in the hospitality industry.
The economist E. J. Antoni recently stated that, [US] “Retail sales last month (March 2024) look like they're up 15.3% since Mar '21, but if you adjust for inflation, the real change is -2.2% over the last 3 years - consumers aren't buying more, they're just paying more; families have clearly lost ground over the last 3 years.”
It is interesting that the highly economic sensitive Dow Jones Transportation Average has failed to make a new high in 2024 and that it is down by more than 5% year-to-date. Also of note is the fact that the Dow Jones Utility Average (UTIL INDEX), made a high in April 2022 (two years ago), and that it is now down by 17% from the 2022 high. I am mentioning these technical facts because according to the Dow Theory, the recent March high in the Dow Jones Industrial Average (INDU Index) at close to 40,000 was not confirmed by the other Dow Jones Averages. I regard this non-confirmation by the Dow Theory as an extremely negative omen for the entire US stock market.
Over the last twelve months I have repeatedly explained that high monetary expansion distorts the economic landscape continuously and that symptoms of inflation will show up in different sectors of the economy at different times and with different intensity. A most unusual feature of current US economic and financial conditions is the exceptionally high level of corporate profits. The increase of corporate profits as a percentage of GDP also occurred during the Weimar hyperinflation (1918 – 1922) and in the inflationary 1970s. However, once monetary inflation retreated corporate profits as a percentage of GDP declined for several years.
I wish to be absolutely clear about one point. Under a tight monetary regime, corporations would not be in a position to increase prices much and their profit margins would shrink. But amidst expansionary monetary conditions and huge fiscal deficits with large social transfer payments, corporations can increase their prices more than their costs increase. [McDonalds’s prices have more than doubled since 2014. The fast-food chain’s average price increase is more than triple the actual inflation rate.] Also, according to Business Insider, “The effects of California's $20 minimum wage for fast food workers are starting to show. Chipotle(CMG) said the law raised wages at its restaurants by roughly 20% (see Figure 20). This translated to a 7% menu price increase at Chipotle locations in California. California's $20 wage for fast food workers is just a few weeks old, and the effects on workers and customers are beginning to emerge. According to Chipotle, “the law drove a 20% increase in wages for its restaurant staff in the Golden State.”Correct,it is frequently regulation that increases upward price pressures.
Last month’s report stated that, the reason the recent gold price upward move was a genuine “break out,” which would lead to further price gains was that it was accompanied by apathy from the investing public, which by itself was most uncommon. As gold prices move up, small traders usually increase their futures’ positions with great enthusiasm. But so far this had not been the case.
Strength in financial stocks is a favorable indicator for the entire stock market. We have seen this over the last few months in the US, more recently in Europe, and now we observe strength in Singapore and Malaysian banks and also in Chinese and Hong Kong banks. Financials which have recently been strong in Hong Kong/China are among others AIA Group (1299 HK), Bank of China (3988 HK), and China Life (2628 HK). Both the MSCI China Index and Hong Kong’s Hang Seng Index are now up by 20% from the January lows. It increasingly looks as if the Hong/Kong/China markets have made major lows.
It would seem to me that there are enormous “real” maladjustments at present in the global economy and, that therefore, the coming recession/depression will be severe. The problem is that, as the economist Irving Fisher noted, “If all prices and incomes rose equally, no harm would be done to anyone. But the rise is not equal. Many lose and some gain.”
Even amidst high monetary inflation, I would expect some assets to appreciate substantially while most financial assets are likely to deflate.
It is not my intention to depress my readers but the linked video about the American Secretary of the Treasury Janet Yellen is something for the financial history books.
https://mcusercontent.com/d0d13206dfc75b54165fc7c00/files/3db64702-5978-5ca7-ca9e-eb3530e6aa71/Secy_of_Treasury.mp4
With kind regards
Yours sincerely
Marc Faber
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